Crown Resorts’ failure to alert authorities about a sale of shares to the Macau-based Melco International before the deal was announced publicly could be a breach of its casino licence and raises questions about Crown’s suitability as a casino operator, the counsel assisting a New South Wales inquiry into the casino giant, Adam Bell SC, has said.
The inquiry, which began on Tuesday, is expected to call the billionaire businessman James Packer and the Melco International chairman, Lawrence Ho. It is also expected to hear from a raft of Crown and Melco executives as it seeks to probe whether both Crown and Melco are suitable to exercise control over the high-roller casino licence at Barangaroo in Sydney granted in 2014.
The inquiry was sparked by last year’s announcement that Melco plans to buy 19.9% of Crown from Packer’s CPH Holdings and by allegations of money laundering and the involvement of organised crime in Crown’s Melbourne casino made in the Nine newspapers.
The former supreme court judge Patricia Bergin SC held an opening hearing on Tuesday, but the inquiry gets under way in earnest on 24 February, when it will begin the first part of its investigation. This will look into the vulnerability of casinos to money laundering and the role of junkets and links to organised crime.
A second tranche of hearings is scheduled for March and will look into the sale agreement with Melco and whether the transfer of shares would give rise to any breach of the licence.
A third set of hearings will look into allegations made in the Nine publications about Crown’s involvement with money laundering and organised crime, while two final blocks of the inquiry will look at Melco and the suitability of any close associates, and strengthening future regulation.
In his opening remarks, Bell said Crown had not alerted the casino authority about the CPH-Melco deal ahead of time in order to allow it to assess the suitability of the new shareholder. This had opened up a question about Crown’s suitability.
Crown has said it was not aware of the share sale by its largest shareholder, CPH Holdings, to Melco until the sale was announced publicly. This is despite CPH having four directors on the Crown board.
The NSW Casino Control Act requires a licence holder to alert state authorities ahead of time if a new person proposes to become a “close associate” of the holder of the licence so that authorities can assess whether they are of good repute and do not have any business associations that would raise issues.
Bell argued that the NSW act required commissioner Bergin to take a very wide view of who were close associates and that it was not limited to shareholding or directorships but also financial power and influence over a casino’s operation.
Lawrence Ho’s Melco group raises particular questions because of his father, Stanley Ho, whose STDM group had a monopoly over gaming in Macau until 2000. Stanley Ho has been linked by casino regulators in New Jersey to triads and organised crime, Bell said.
When the Barangaroo licence was granted, the concerns led to special conditions being included in Crown’s licence that prohibited Stanley Ho and 59 companies associated with him from being “close associates” of the Sydney casino.
Lawrence Ho, who had previously been in a joint venture with Crown in Macau, had been cleared in earlier inquiries as a suitable person.
But both Bell and his fellow counsel assisting, Naomi Sharp SC, outlined the limits of those investigations, and flagged that there would be a much more detailed investigation of the links between Melco group and the business interests of the father.
In particular the inquiry is likely to delve into a company, Great Respect, a British Virgin Islands company that is owned by the family trust in which Stanley Ho is a beneficiary. Great Respect holds 20% of Melco International.
Bell noted that despite findings by other casino regulators that Stanley Ho was not suitable, Ho senior has strongly disputed the findings and has not been convicted of any offence.
He also noted that Lawrence Ho has said Melco is independent of his father’s gaming interests.
Two earlier NSW inquiries that occurred when Crown briefly owned shares in Echo Entertainment, which in turn owned the rival Star casino, had not found any issues of suitability, integrity and honesty in relation to Lawrence Ho, Sharp said
Those findings fed into the 2014 inquiry into Crown’s application for a high-roller restricted gaming licence at Barangaroo.
“Because NSW authorities had already looked into suitability in the 2012-13 review, the conduct of the suitability review in 2014 was completed in a short timeframe,” she said.
Crown has also faced scrutiny from Victorian authorities.
The most recent review in 2018 found that Crown was suitable, Sharp said. But by that time Melco and Crown had ended the joint venture and so the suitability of Lawrence Ho and Melco was not the subject of the review, she said.
Sharp also foreshadowed that the inquiry would go into great detail about the role of junkets in Australian casinos and overseas.
She noted that junkets are well recognised entities in the gambling landscape and assist casino businesses by bringing VIP and VVIP gamblers to casinos.
But junkets also play an important role in providing credit and enforcing gambling debts, and it is these roles that open up vulnerabilities to organised crime, she said.
The third part of the inquiry will look into the allegations made by the Nine newspapers and 60 Minutes in July 2019.
This will include that Crown resorts knowingly broke the law in China by requiring and incentivising staff to operate in China to lure Chinese high rollers to gamble in Crown’s casinos; that Crown partnered with two junket operators with organised crime backgrounds, including one known as the Company; and that Crown Resorts helped bring criminals through Australian borders that raised serious security concerns.
Sharp noted that Crown had denied the allegations and took out an advertisement claiming that the media reporting was based on unsubstantiated claims and falsehoods.
On junkets, Crown claimed it dealt with these independent operators in the same way as other companies do around the world.
Sharp said the inquiry would hear detailed evidence on how Australia regulates junkets as well as how they are regulated overseas.
She revealed that in 2015 and 2018 there were two reviews in NSW conducted by a former Victorian official, Peter Cohen, which had led to NSW’s regulation of junkets being watered down through changes to the regulations in December 2018.
She said this Casino Modernisation Review, as it was called, had led to responsibility for scrutiny of junkets being moved from the NSW casino regulators to the licensees in what was said to be a “risk-based approach”.
This meant that the casinos themselves were responsible for vetting and approving junket operators to ensure they were not linked to organised crime.
The final part of the inquiry will look at the adequacy of regulation.
Changes to the regulatory arrangements had stripped the Casino Control Authority of its autonomy and had brought it under the direction of the minister, Sharp said.
Recent changes meant the regulator could not make changes to the restricted gaming licence held by Crown without its agreement, she said.
Bergin concluded the inquiry by asking the parties to cooperate.
She said the inquiry had already assembled 58,000 documents and was in ongoing consultation with state and federal regulators which were providing information.
“If it be the case that the present structures and arrangements in place do not facilitate and enable effective control of the risks of casinos, then you will expect a robust and cutting-edge approach will need to be adopted to control those risks,” she said.